Fixed rates in fashion with borrowers

Adam Smith 8 April 2016

Fixed rates in fashion

Fixed rates seem to be finding favour with borrowers, according to new research.

The proportion of Australians choosing fixed rate home loans has hit a peak of 17.7%, according to quarterly figures from Australian Finance Group. This is up from a low of 2016 last year.

“With sections of the money market making the call of a rate cut in the coming months there are some very attractive fixed rates available. With rates being at historical lows the downside risk of fixing is relatively small so many borrowers are choosing to lock in now,” AFG general manager of sales and operations Mark Hewitt said.

Hewitt said in spite of the RBA’s long period of inactivity, there was no guarantee lenders wouldn’t move on rates. In light of this, more borrowers are choosing to hedge their bets.

“Some [lenders] are talking about increased funding and regulatory costs and locking the low rates in now is a way borrowers can insulate themselves against any out of cycle increases by the banks,” Hewitt said.

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Hewitt said the quarter had also seen a rise in investment activity, with investor loans accounting for 33% of the company’s volume.

Overall home loan activity was up 5.7% on the same quarter last year, and Victoria led the increase with a 15.7% rise. Hewitt said another encouraging sign of health for the lending market was a decline in the average loan to value ratio (LVR). The average LVR fell to 68%, its lowest in three years.

“This means homebuyers are continuing to borrow within their capabilities,” Hewitt said.

Both Western Australia and the Northern Territory showed the effects of the resources downturn, however, with home loan activity dropping by 16.7% in WA and 28% in NT.

Source: AFG

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